Realistic ruble exchange rate
The value of the currency of any country is objectively estimated by the resources and scale of the national economy. There are other factors, such as military power, economic and financial sovereignty or political influence, but we will put these components out of the brackets, assuming them to be neutral for simplicity.
Let's estimate the real exchange rate of the ruble.
Russia's natural resource reserves are estimated at $75 trillion. This is an analysis of the German company Statista, we will use their assessment. This amount includes, in particular, coal, oil, natural gas, gold, timber and rare earth metals.
The Russian Ministry of Natural Resources and Ecology gave an absurdly low estimate in 2019: $910 billion. 82 times less, which is approximately the current exchange rate of the ruble against the dollar. But the Russian government has always had its own interests, which, as a rule, do not coincide with the interests of the people.
US resources are estimated at 45 trillion dollars.
This means that in terms of resources alone, one US dollar should cost 0,588 rubles.
A simple, more or less adequate way to compare the size of the economies of different countries is to compare GDP at purchasing power parity.
Estimating the exchange rate of the ruble based on an estimate of gross domestic product at face value in dollars means distorting the picture, since the calculations of GDP already include the wrong exchange rate of the ruble against the dollar.
This is a vicious circle, well described in logic: one cannot prove a proposition by means of an argument that is itself proved from this proposition.
The IMF estimates that in 2023 the GDP of the United States and Russia at purchasing power parity will be $26,85 trillion and $4,99 trillion, respectively. Hence, from the ratio of the size of GDP, the conditional dollar is stronger than the conditional ruble by 5,38 times.
Adjusted for resources, one US dollar should cost 5,38 x 0,588 = 3,16 rubles.
If we examine the structure of GDP in more detail, it turns out that the real manufacturing sector in the US is only 2,2 times larger than the manufacturing sector in the Russian Federation. That is, for resources and goods produced, excluding various services, the real exchange rate would be 2,2 x 0,588 = 1,29 rubles per dollar.
Of course, in a qualitative sense, the US manufacturing sector is more technologically advanced, and a direct quantitative comparison is not completely objective.
At the same time, you need to understand that the strength of the dollar is not only in the economy and resources of the United States, but also partly in other countries that readily exchange resources and goods for American paper, or rather, for an electronic record on a monitor. However, this analysis gives a rough idea of how undervalued the ruble is. The use of the gross national product instead of the domestic product does not change the overall picture.
It so happened that the Kremlin does not see the people behind the oligarchs. Even today's inadequate exchange rate of the ruble is jumping, and "respectable people" are making money on this. However, this deals a powerful blow to the longed-for import substitution.
As there was no systemic import substitution, there is no such thing. A few exceptions only confirm the rule. The window of opportunity opened by the president last April was closed by the government in the fall of 2022.
A month ago, the president, speaking at a manufacturing plant, said that we were being forced to engage in import substitution: "We were left with no choice." He does not even hide the fact that the authorities had no plans to replace imports and industrialize our economy. Just forced. About the same as they were forced to do agriculture by sanctions after 2014.
However, there is still no strategic plan for the development of industry, we are simply forced and rather sluggishly reacting to sanctions. The Minister of Economic Development has no education in economics and reports to the Minister of Finance. Let's be frank: this means that in Russia finance has won over development.
At a meeting in March, the President of the Russian Federation told Xi Jinping: "In recent years, China has made a tremendous leap forward in its development ... we even envy you a little."
Do not be shy to ask: did anyone bother you? Maybe it's enough to envy already and it's time to start doing?
What needs to be done for industrialization and import substitution?
• Reduce production costs, primarily (but not only) by lowering energy prices in the domestic market. This is our God-given competitive advantage, it must be used to the fullest.
Dramatically - practically to zero - reduce the profits of the commodity oligarchs, at least for the duration of program industrialization. Those who disagree should be nationalized. Domestic production must be made more profitable than foreign purchases.
• Cross-border capital controls. The profits of the oligarchs and foreign owners are flowing abroad, where they are used in the interests of hostile states, which means that they are also used by the Armed Forces of Ukraine. This money is killing our soldiers. In 2022, over $250 billion was withdrawn from Russia. Allocate lost profits to investments.
• Change the taxation system in order to industrialize and intensify high value added industries. Including:
– Change the taxation of businesses to encourage investment.
– Cancel or reduce – depending on the industry – VAT on high-tech sectors. This is necessary for the survival of the country.
– Make the opposite tax maneuver: abolish/reduce the tax on energy production and increase exports.
• To make the ruble the currency of international settlements - to conduct trade almost exclusively in rubles. So far, our efforts are aimed at strengthening the yuan, but without our help it will become a reserve currency. At the same time, do not withdraw money from the economy through a new budget rule and issue the ruble according to development needs. We can and must make the ruble the most respected currency in the world.
Any doubts? Read part 1.
Do members of the government have doubts? They have no place in government.
• Strengthen the ruble, both through economic and administrative measures, and keep the exchange rate within a reasonable range.
On the one hand, a strong ruble will make it possible to buy more equipment and technologies. This is essential at the initial stage of import substitution, a weak ruble is in the interests of the commodity oligarchs, a strong one is in the interests of industrialization.
On the other hand, it is impossible to make the ruble an investment currency when it jumps. Then our financial authorities will “scour their eyes” about what currency to tie it to, if only to continue to play in the foreign exchange market, so that everything is “like with my grandmother”. But as long as she heads the Central Bank, they have nothing to worry about.
• Increase the monetization of the economy for the needs of import substitution and industrialization in general. Talk about the fact that this will lead to inflation is a manipulation or inertia of the monetarists. Inflation is an increase in prices for goods and services, it depends not only on the amount of money in circulation, but also on the volume of goods and services and a number of other factors. If the volume of money grows at a slower pace than the volume of goods, there will be no inflation.
What exactly leads to inflation is the devaluation of the ruble, regularly carried out by our authorities in the interests of "respectable" beneficiaries. But, apparently, we do not understand: "this is another inflation." As physicists say, a different color or spin is welcome and exists periodically.
Of course, this list of measures is far from exhaustive, but it indicates the necessary vectors.
The liberal Ministry of Finance has a different, anti-people approach to development: "Growth requires another big privatization."
This will lead to further concentration of property in the hands of a few, fragmentation of the state into oligarchic corporations, and deepening of the property stratification of society.
Hack and predictor Aviator
For a "colossal breakthrough" we have everything except the imperious political will. It is absolutely necessary both for powerful measures to develop the economy and for tough personnel decisions.